Let them Eat Cake

DNC Chair Debbie Wasserman Schultz insisted to CNSNews.com October 4^th that “anyone’ can see that the economy is improving even though 115,730 people lost their jobs in September (the most in more than two years). Pres. Obama admitted that Americans were not better off today than four years ago.

Fed officials “saw considerable uncertainty surrounding the outlook for a gradual pickup in economic growth,” with the economy showing only a weak bounce after the recession in contrast to past recoveries. Reasons for this weakness remained “unclear” although some blamed business and consumer debt and the distressed housing market.

Interesting isn’t it?

Here is a piece of good news. Bloomberg has gone on record as saying that a string of stronger-than-projected statistics -- capped by the news on Oct. 7 of a 103,000 rise in payrolls last month -- has prompted economists at Goldman Sachs Group Inc. and Macroeconomic Advisers LLC to raise their growth forecasts for third quarter growth to 2.5 percent from about 2 percent. That’s nearly double the second quarter’s 1.3 percent rate and would be the fastest growth in a year. The interesting aspect to this is that Bernanke projected the economy to grow at 3% back in July.

Here's the really good news: Restaurant industry sales in 2011 are expected to reach a record $604 billion and sales are projected to improve 3.6% over 2010 sales. Every dollar spent in restaurants generates $2.05 in the overall economy and restaurant employees comprise nearly 10% of the entire U.S. workforce. One of the barometers of economic improvement: When we start feeling flush enough to order the wine and the dessert again.

Fundamentally, I trust the fact that we are all starting to buy dessert as the most pragmatic indication that things might actually be getting better. We know that the government is not going to help in the short term. If we are going to see this thing turn around it is going to be one dessert at a time. There isn’t going to be a bailout of the pie factory or a fork ready stimulus plan at the diners. It’s going to be businesses feeling better about the economy and willing to talk about it over dessert.

It’s not the Lobby Groups, It’s the Politicians Stupid

I read, with some alarm, an article circulated by the Associated Press entitled “Protest against Wall Street spread across US” ( Chris Hawley 10/04/2011). The alarming part was quotes from demonstrators like “We feel the power in Washington has actually been compromised by Wall Street,” Jason Counts computer analyst in St Louis. Alternatively, “we support the notion that rich folks are not paying their fair share.” John Samuelsen, President of the Transport Workers Union in New York. How about “How to fix the deficit: end war, tax the rich” chanted by a group dressed as zombies marching on Wall Street.

The article did represent the other view voiced by one passer by wearing a suit named Roland Klingman, who works in the financial industry, “If they believe everyone down here contributes to policy decisions, it’s a serious misunderstanding.”

The political systems have been extremely successful in deflecting their personal agendas onto the masses. If it is true that the financial industry is adversely affecting the policy decisions in Washington, (and I do agree with this), it is a problem of the political system, not the financial industry. The financial industry wouldn’t try to influence policy if they didn’t have a historical perspective that says they can. If politicians want the public to take up arms against those who adversely influence their future, they should demonstrate against the politicians that enable this behavior.

Politicians are in a unique position to take action which we the public cannot. Politicians can end the influence of any lobby group by passing legislation to do so. Why don’t they? Political parties live and die on contributions. Contributions are the lifeblood of political parties much the same as revenue is to a business. They use influence to gain contributions. It’s not just big business that is the target. The people who are protesting the financial industry are the people that have benefited, at one time or another, from an entitlement program targeted toward them. These entitlement programs are designed to solicit contributions for the sponsoring party.

I understand the rage that most of us are starting to feel over the state of politics in America. The people have taken a back seat to fund-raising. Both political machines are far more interested in catering to the deep pockets then the public they represent. We need focus and reasoning in our actions.

If we allow any political party to emotional highjack us into believing that they, the politicians, are the victims, we have lost. If we want to believe; it is the contributor who is causing the harm, not the recipient; we are fools and deserve exactly what we get.

Many Americans are a gullible people with short memories. They are happily lead in any direction in which they feel will improve their personal comfort in the short term.

I’m not pro or con Lobby Groups, just as I am not pro or con political parties…. They have their place…. I am opposed to political groups putting their own agenda and well-being above those who they are paid to represent. Our 546 political representatives in Washington are starting to act like the royal family of America. They feel above the law and beyond the reach of the people.

Healthcare Reform is Not Just About Healthcare

Part of H.R.3200 - America's Affordable Health Choices Act of 2009 is Starting January 1st 2012, all businesses, DBAs, sole proprietors, independent contractors, etc., will have to report ALL transactions (goods & services) through the use of an IRS 1099 form. All "accumulated" transactions of $600 or more per year, will require a 1099.

The IRS currently has a reporting requirement for businesses who hire independent contractors. If a business hires a contractor, and pays them more than $600 in a tax year for services, the business must file a Form 1099. One copy of the Form 1099 goes to the contractor to remind him/her that taxes must be paid on the amount of income received. Another copy goes to the IRS which utilizes the form to ensure that the contractor accurately complies with the tax code by paying the proper amount of taxes on income.

As of 2012, every business -- big and small -- will be required to issue a Form 1099 to any vendor of services or property to which the business has paid more than $600 in a tax year for those services or property, regardless of the method of payment. A copy of the Form 1099 must also be sent to the Internal Revenue Service. Think about the hundreds of millions of transactions performed daily...credit card transactions, checks, money orders, cash, bank wires, E-pays, etc.

According to a survey conducted by the National Association for the Self-Employed (NASE), micro-businesses (fewer than ten employees) issue approximately two to three Form 1099's to independent contractors under the current reporting requirement. Under the new expanded regulation, these businesses have estimated that they will have to issue roughly twenty-seven Form 1099s, mostly to large corporations. This is a 1250% increase in the amount of paperwork that will be required of small business come 2012. In addition to issuing form 1099s, a business will have to get Taxpayer Identification Numbers (TINs) from all qualifying vendors. Should the business owner be unable to do so, they would be required to withhold a portion of that vendor payment and send it to the IRS. The IRS will have to use a significant portion of the 16,000 new employees authorized by H.R. 3200 just to audit the flow of new 1099’s.

Should a business not file or inaccurately file their form 1099s, significant penalties will apply.

Is there good news along this front? Yes, Small Business Paperwork Mandate Elimination Act of 2010, S.3571/ H.R. 5141, is designed to repeal or modify this regulation.

Using Deferred Revenue to Control Cash

Deferred Revenue is revenue that is considered a liability until it becomes relevant to the business at hand. There are many forms of deferred revenue: gift certificates, software license, prepaid professional services and possibly some retainers when the service delivery schedule is not pre-determined.

Cash is an asset. Period. It is never a liability; never an expense; never anything but an asset. Cash is a current asset, and serves to increase the net worth of whoever is in possession of the cash. Deferred revenue provides cash, but it also establishes a liability because it represents a future event. All deferred revenue will become revenue at some point. You will have to pay sales tax, income tax and possibly royalties eventually.

If your deferred revenue has an expiration date, it becomes revenue on that date. If your deferred revenue does not have an expiration date you will need to develop a procedure for expiring unused services. Anything sold but not redeemed must become revenue at some point. The IRS will not allow you to carry deferred revenue on the book indefinitely. If you don’t have a procedure to recognize this unused revenue they will give you one. Their procedure will accelerate revenue recognition faster than you may want.

How can a business owner use deferred revenue to help their business? It comes down to cash management. During slow periods cash becomes a problem. Selling products or services in a slow period that will be redeemed at a later date is a way of evening out your cash flow. You might have to provide an additional incentive to buy now and collect later, but the discount might be worth the value to you of accelerating cash flow.

In these hard economic times, when banks are not as forthcoming as they have been, it might be wise to find a way to “float a loan” from your customers. Careful accounting is important. You don’t want to sell what you can’t deliver. Understanding the future consideration of your deferred revenue is critical to long term success. Using gift certificates or pre-paid services might be a way of getting over that financial hump in the middle of your down cycle.

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This Month's Quote

“Every successful person I have heard of has done the best he could with the conditions as he found them, and not waited until next year for better”" Edgar Watson Howe

Enduring Greatness

Jim Collins is still one of my favorite authors. He has this die hard, never say quit, damn the torpedoes, full speed ahead, attitude about success. In his latest article for Fortune Magazine “The Secret of Enduring Greatness”, he again states his case for greatness. ….The best corporate leaders never point out the window to blame external conditions; they look in the mirror and say, "We are responsible for our results!"….

We ARE responsible for our results. Whether those results are for individual behavior or corporate performance, we are responsible. One common denominator of those who never achieve their potential it is lack of personal responsibility, the belief that others have more control over our personal performance than we ourselves do. I could point to countless examples of this in society. In almost every case there is a price to be paid. In the end the price is far greater than the original cost of just taking responsibility and making something happen.

In the face of uncertainty, punt. Uncertainty creates stress. Stress hurts. So we hide from the source of that stress by assuring ourselves that there is nothing more we could have done. It’s just not our fault. If only this had happened or that had happened it would have all turned out differently. If only the government had adopted this policy or that policy it would have turned out differently. If our employees had performed better, if our customers weren’t so demanding, if the competition had been honest, it would have turned out differently. There is a never ending supply of excuses.

It was once said it is not how many times you are knocked down, it is how many times you get back up. Life was never meant to be a smooth road. We get stronger through adversity. Without adversity we would never know triumph. How would we ever relate to those in need if we ourselves had never experienced it? Here is a simple way to overcome adversity and accelerate your success:

1. Define the problem in front of you in the greatest detail possible
2. Write down every potential outcome from the situation as you see it today
3. Decide what one outcome is the worst possible scenario.
4. Develop a plan to mitigate the impact of this scenario.

Once you define the problem in detail you will find that it isn’t as bad as you imagine. Our imaginations always paint things worse than they are. This alone will reduce the stress level by eliminating some uncertainty. By choosing the worst possible scenario you face the worst possible outcome. I think you will find that it isn’t as bad as you thought. Finally attacking this scenario with a plan to minimize its impact on your life will put you in a position to win. Remember this is the worst possible scenario. Everything else is peanuts compared to this.

Having a plan and working your plan is the only way to take responsibility for what happens to you. The environment changes, plans change, results vary. The goal is to have the final result better than the results you would have gotten doing nothing.

“A clear vision, backed by definite plans, gives you a tremendous feeling of confidence and personal power.”
Brian Tracy

The Dynamics of a Recession

The old saying is; “A Recession is when your neighbor is out of work and a Depression is when you are.” Keep in mind that during a recession over 95% of the employable working population is still gainfully employed. They may modify their spending, which has a trickle down affect, but they don’t stop spending. Here is an indicator; the Consumer Electronics Association trade group forecast industry revenue would grow 6.1 percent over 2007 to $171 billion -- despite rising energy costs, a slumping housing market and the subprime lending meltdown. Television displays are to make up the largest portion of projected sales at 16 percent. Shipments of TVs will grow 13 percent to more than $29 billion, the trade group forecast. Does this sound like a serious recession or is the old saying still true?

The International Monetary Fund projected in December that the U.S. economy would grow only 1.9 percent in 2008, its slowest rate in six years. So what’s up with this? The electronic entertainment industry is going to grow three times the U.S. economy and we’re in a recession. Economic downturns are like the weather. Forecasting a 40% chance of rain in your city doesn’t mean you’ll see rain. It follows Heisenberg’s Uncertainty Principle. We can predict with almost 100% certainty that there will be a downturn in the overall economy, but we cannot predict with certainty what the impact will be on any one industry, business or person. It’s just too granular and elastic.

The amazing thing is that each person, business and industry can take steps to mitigate the impact. The larger the group involved the harder it is to coordinate the effort required to be successful at making this adjustment. Individuals can react very quickly to change their habit. Businesses, with strong leadership, need more lead time to turn the ship because of the mass. Industries require way too much inter-competitive cooperation to be successful. Some business will use the downturn in the economy to sabotage competitors within their same industry making it even harder for the industry to adjust. The point is that each has a decision to make concerning the degree and length of the impact of an economic downturn.

So what are you doing? Are you going to be buffeted by the winds of change, or take the helm and use this wind to go faster? Now is the time to rethink strategies. In an economic downturn the focus must be, more than ever before, on hard dollar benefit to the buyer. Can you make money or save money by using my product? Discretionary spending will dramatically decrease, not go away, but decrease. At the individual level people will put money in things that they can get the money back out of if needed. Can I reduce the heating bill; can I increase the value of my home? Businesses will spend money to reduce the overall cost of operations. Can they automate an operation saving the need to hire additional people? A note here, very seldom will a company intentional set out to downsize their workforce. Downsizing, right sizing and outplacement are almost always the result of a lack of cash flow. It’s a by-product of events, not the objective. Your strategy should be to leverage existing people to do more.

If you use a reseller channel, what incentives are you providing your partners to help their customer buy more from them? Most suppliers provide incentives (typically through discounts) to the partner hoping for a trickle down affect to their customers. Be a little more obvious and intentional. An example might be to provide a payment plan for the end-user through the reseller. The interest on the money won’t be more than the original discount and the ultimate buyer see a direct benefit.

Get away from the victim mentality. Take control of your destiny. Put in place intentional strategies to protect yourself over the next few months. The more you can encourage the market to buy your offerings, the shorter the “recession” will be. It’s good for all of us.

Guard Against a Potential Recession

I’m not an alarmist by nature so don’t take this as an ominous prediction, it’s not. I wanted to take a minute just to remind everyone of what may appear to be obvious. There is a lot of talk about a potential recession. The old adage is that a recession is when your neighbor loses his job and a depression is when you lose yours. Now I don’t expect either in the near future but prudence says that we should “expect the best but prepare for the worst” So let’s talk about preparing for the worst.

Have you started contingency planning for a slowdown in the economy? Do you understand what that might mean specifically for your company? If you were in the real estate or construction industry you already know. Start taking action to mitigate the potential damage.

Here are some ideas…

Look at your pricing policies to determine if there is a way of assuring future revenue from sales made now. There may be a way of accelerating the recognition of that revenue later if you need it. Remember if you have to discount a deal, always try to discount the one-time products or services over the recurring. If you sell professional service as part of your offering, try to discount those aspects that will only happen once as opposed to your overall billing rate. A discount to your billing rate may last forever.

Take a good look at your pipeline for prospects that might not have the ability to pay in a downturn. The decision concerning what to do is an individual issue. Protect yourself from incurring expenses that you may not be able to collect on down the road.

Don’t start projects that fall into the “nice to have” category both internally and externally. An updated document viewer my make your product more attractive in the long run, but if it isn’t going to pay for itself in the short run consider putting it off until you’re sure the economy is in your favor.

People are your most important asset. If you gain a reputation of jettisoning employees it will be hard to replace them with quality people later on. Make this your last alternative. If the downturn is short lived, the severance pay, plus new hire cost, will eat all your potential savings.

This is a really good time to have conversations with your best customers. Start putting together a contingency plan with them. It will pay overwhelming dividends down the road. It might be a time to accelerate projects while the money is available. It’s also the best time to put together a great business case on why your project should be a priority during the downturn. Proactive thinking beat reactive thinking any day.

Bottom line is; don’t let it happen to you. You have an opportunity to do something about it now. Don’t get so caught up in the day-to-day that you leave yourself exposed. If it doesn’t happen, you will have left yourself in a better position for what will happen.